January was an
eventful month at the Fed; they raised rates for a 14th consecutive
time and Alan Greenspan retired after 18 years in the top slot, yielding his
position to Ben Bernanke.

It was a pretty
good month for equities, too.So
were February and March, as stocks elbowed their way nicely higher.Bonds weren’t quite so fortunate during the first quarter, as rates
edged up in response to the constant Fed pressure.

Speaking of
interest rates, and pressure, as the quarter drew to a close, the Fed once again
raised them, this the 15th consecutive quarter-point boost.The Fed went further, hinting that more rate increases are in the offing.One wonders if – or when – the markets will catch on to the fact that
interest rates have moved up.The
rate curve remains very flat, though the long end does seem to be showing some
signs of normalizing (read:rising).

The gain in
stocks during the quarter was certainly welcome.All of the broad popular averages hit 5-year highs, though the high water
mark set in 2000 remains just a little out of reach.Nevertheless, we cannot help but be pleased to see some upside after
these last few years of lethargy.

The stock market
is overcoming a downturn in housing—widely anticipated, and finally upon
us—and the apparent demise of the American automobile manufacturer.(I, for one, while recognizing their problems, am not yet ready to count
GM and Ford out.)It is also
ignoring the war in Iraq and the steadily increasing price of oil.And the rise in the price of gold reflects concerns about our currency.Given these things, the strong economy and high level of consumer
sentiment is surprising.

Some people would
have you believe that tax cuts are the factor that has driven the economy, and
they have doubtless helped.If
true, perhaps we should cut taxes to zero and really have some fun.But, joking aside, we have to recognize that a large part of the
resilience in the economy is probably due to the deficit spending that our
government appears to be addicted to.All
of that excess cash sloshing around is good for business, as long as the public
continues to believe that there is no inflation.It is also a factor in keeping rates low (and bonds high), as money
competes for yield.Eventually, a
future president will try to rein in debt and right our financial ship, and we
will pay the price for our excesses.But
for now, enjoy the ride.

For quite some
time now it has been a market led by small- and mid-sized companies, as the
stocks of our nation’s giants (outside of energy) slumbered.They remain somnolent for the most part, although, as always, there are
some notable exceptions, the aforementioned oil being a prime example.

Thus, while
holders of Exxon and it’s peers have been happy, those who held companies like
GE, Home Depot, AT&T, Intel, Coca-Cola, Microsoft, IBM, all of the major
pharmaceuticals, all the major foods, etc., etc., are perhaps wishing they held
gold stocks.The Street has long expected that the large-caps will resume
their market leadership.To that I
would say, “maybe, but don’t hold your breath”.Better to balance your holdings across a wide spectrum, of
industries and sizes, and to include bonds and convertible issues.

What can we
expect going forward?There is a slight seasonality to the markets, and we have
just finished the strongest season.So
we can expect a less ebullient market in the second quarter.I remain positive in my opinion of the year yet to unfold, though I do
not look for double-digit gains this year or next.Bonds will almost certainly be muted.Our balanced approach should serve us well.